The Rupp Report: Continuous Cotton Traffic Jam

Jürg Rupp, Executive Editor

The Rupp Report of May 18, 2010, "
Cotton
Traffic Jam In Asia," informed about the quasi cotton war, mainly in Asian countries. After
Pakistan's restriction on cotton, India's Ministry of Textiles imposed an export stop on Indian
cotton and cotton waste. India's textile industry was concerned about its own cotton supply and had
requested this measure. An export tax of 3 percent had already been put on cotton exports for some
time beforehand. According to the Indian Export regulations, cotton exports have to be registered
at the Ministry of Textiles, and only registered amounts may be exported. And the traffic jam goes
on.

Stormy WeatherSome two weeks ago, Tropical Storm Hermine formed in the Gulf of Mexico off of Texas. This
was not only a problem for the region in danger, but also for the cotton growing areas. On the
other hand, according to information from Plexus Cotton Ltd., some panic-like trading in China made
the market soar to new heights.

On top of that, the International Cotton Advisory Committee (ICAC) reports heavy flooding in
Pakistan has affected more than 20 percent of its cotton-growing area. ICAC has revised down the
2010/11 Pakistan crop estimate by 15 percent to 1.9 million metric tons. Also, ICAC projects
production in China will be lower than was projected in August because the weather in the Yangtze
River Valley region has been unfavorable.

On top of that, crop reductions are possible in China, Pakistan, Brazil and some African
regions, while world mill use should be more or less maintained. There is also the possibility of a
further reduction in Chinese stocks going back several seasons. China Cotton Association members
reported carryover stocks at just 205,000 metric tons at the end of August, which is the equivalent
to a little more than a week's worth of mill consumption. While this number doesn't include
government reserves, consignments and mill stocks, Plexus reflects that it is still a good
indication of how tight supplies must be in China at the moment.

Soaring PricesThe market has now gone up for weeks without much of a pause. According to Plexus, New York
futures continued their surge last week, as December closed 533 points higher at 95.76 cents, and
March closed 565 higher at 94.73 cents. The nervous situation increased even further upon India's
announcement of a postponement of its export registrations until at least October 1. Plexus
reports: "The Indian textile industry has been asking the government to restrict cotton exports
until January, when a more accurate assessment of the crop size will be possible, after stronger
than usual monsoon raised concerns about this year's output. The previously announced duty free
quota of 5.5 million bales was already smaller ... and this postponement has been adding more
uncertainty to an already jittery market."

Reduced Available SourcesPlexus further reports: "The delay by India, the world's second largest cotton exporter, is
further reducing the available sources, just weeks after the world's fifth largest exporter,
Brazil, saw its prices explode to prohibitive levels and has recently even issued a duty free
import quota of 1.1 million bales. Since the export policy and availability of the third largest
exporter, Uzbekistan, remains largely uncertain at this point and number four Australia won't bring
any relief until well into the second quarter, the US is currently the only big chair to sit on.

"That became quite evident when the latest US export sales report were released [noting that]
845,600 running bales of Upland and Pima cotton were bought by 21 different markets. Quite
remarkable was that 256,000 of those bales were for the 2011/12 season. For the current season
export commitments now total 7.9 million statistical bales, of which only 1.2 million have been
shipped so far."

More Chinese ImportsIn its Sept. 1, 2010, edition of "Cotton This Month" ICAC reports: "China and India are
expected to account for most of the increase in global cotton mill use in 2010/11, while
consumption in Pakistan could decline due to damage and disruption caused by the floods.

"Imports are expected to continue to recover in 2010/11, growing by 9 percent to 8.5 million
tons. This increase will be driven by Chinese imports, forecast 29 percent larger at 3.1 million
tons. Chinese stocks decreased considerably during 2009/10, and the government started in August to
auction an important portion of its national reserve. Imports by Turkey are expected to decline to
786,000 tons in 2010/11 due to a larger crop. U.S. exports are projected up by 27 percent to 3.3
million tons in 2010/11, fueled by the expected larger crop. Exports from India, Brazil and
Australia are also expected to increase. The share of the United States in global exports is
projected to rebound from 34 percent in 2009/10 to 39 percent in 2010/11."